The Disaster Ready Fund (DRF) was initially established as the Emergency Response Fund (ERF) upon commencement of the Emergency Response Fund Act 2019 (ERF Act) on 12 December 2019. The ERF provided up to $150 million per year for emergency response and recovery, and up to $50 million per year for natural disaster resilience and risk reduction.
On 1 March 2023, the ERF was renamed as the DRF upon commencement of the Emergency Response Fund Amendment (Disaster Ready Fund) Act 2022 (DRF Amendment Act). The DRF Amendment Act renamed the ERF Act as the Disaster Ready Fund Act 2019 (DRF Act) and allowed up to $200 million per annum to be drawn from the DRF to fund natural disaster resilience and risk reduction from 2023-24 onwards. The DRF Amendment Act also transferred responsibility for fund expenditure to the National Emergency Management Agency and streamlined certain administrative arrangements in relation to transfers from the fund.
Legislation
The DRF Act gives effect to the following:
- Investment Mandate: the responsible Ministers are required to issue at least one investment mandate to the Future Fund Board of Guardians (Future Fund Board) in relation to the DRF.
- Crediting amounts to the DRF: the responsible Ministers may, by writing, credit the DRF Special Account with a specified amount or with specified instalments.
- Debiting amounts from the DRF: from 2023-24, up to $200 million per financial year can be drawn (debited) from the DRF to build resilience to prepare for or reduce the risk of future natural disasters, and build the long-term sustainability of communities that are at risk of being affected by a future natural disaster.
Investment Mandate
The responsible Ministers must give the Future Fund Board at least one written direction about the performance of the DRF investment functions. Before formally issuing an investment mandate direction, the responsible Ministers must invite the Future Fund Board to make a submission on the draft investment mandate. Should there be a submission, it must be tabled together with the investment mandate in both Houses of the Parliament.
The Emergency Response Fund Investment Mandate Amendment (Disaster Ready Fund) Direction 2023 commenced on 1 March 2023, at the same time as the DRF Amendment Act. This direction amended the Emergency Response Fund Investment Mandate Direction 2020 to reflect the renaming of the ERF as the DRF, and replace references the ERF Act with the DRF Act. The Explanatory Statement provides further details on the amendment instrument.
The investment mandate is now named the Disaster Ready Fund Investment Mandate Direction 2023. It requires the Future Fund Board to adopt a benchmark return of the Consumer Price Index + 2.0 per cent to 3.0 per cent per annum, net of investment fees over the long term.
In targeting this benchmark return, the Future Fund Board must determine an acceptable but not excessive level of risk for the fund, including having regard to the plausible capital loss from investment returns over the forward three-year period. The Government acknowledges that targeting the long-term benchmark return implies accepting the risk of capital losses, in adverse markets, that may be 15-20 per cent of the portfolio over a three-year period.
Investment Performance and Financials
The Future Fund Board publicly discloses the DRF asset allocation and investment returns in its quarterly portfolio updates.
Financial performance since inception to 31 March 2024
| $ 'millions1 | |
|---|---|
| Total Credits | 3,978 |
| (Plus) Net Earnings2 | 1,248 |
| (Equals) Total Credits and Earnings | 5,226 |
| (Less) Debits (drawings)3 | 650 |
| (Equals) Balance | 4,576 |
Notes:
1. Data may not sum due to rounding.
2. Earnings are net of investment and administration fees incurred by the Board.
3. This amount represents debits made for policy purposes under the relevant Act.
Quarterly performance result to 31 March 2024
| Nominal Return | Benchmark Rate1 | |
|---|---|---|
| 1 Year | 9.5 | 5.6 |
| From inception2 | 7.3 | 6.0 |
Notes:
1. The quoted benchmark rate of return follows the relevant investment mandate direction.
2. Inception was 1 April 2020.
Investment performance
| Year | Nominal Returns (Per cent) | Benchmark Rate1 (Per cent) | Total Balance of Fund as at 30 June ($ 'millions)2 |
|---|---|---|---|
| 2019-20 | 3.4 | N/A | 4,130 |
| 2020-21 | 13.9 | 5.8 | 4,654 |
| 2021-22 | -0.1 | 8.1 | 4,450 |
| 2022-23 | 4.6 | 8.0 | 4,448 |
Notes:
1. The quoted benchmark rate of return follows the relevant investment mandate direction.
2. Closing balances are sourced from Finance's annual financial statements.
Credits to the Disaster Ready Fund
The following table provides a history of credits to the DRF (formerly the ERF) with links to the associated documentation.
| Summary of Credits | |||
|---|---|---|---|
| Date | Source of Funds | $million (AUD) | Documentation |
| 12 December 2019 | Uncommitted balance of the Education Investment Fund | 3,978 | Disaster Ready Fund Act 2019 |
| Total Transfers | 3,978 | ||
Debits (Disbursements) from the Disaster Ready Fund
From 2023-2024, up to $200 million per financial year may be debited from the DRF Special Account and credited to the DRF Payments Special Account and/or the COAG Reform Fund for the purpose of increasing resilience, preparedness or the long-term sustainability of a community or reducing the risk of a natural disaster. Commitments under the ERF ceased in 2022-23.
Annual Payments (Debits) from the Disaster Ready Fund (and the previous Emergency Response Fund)
| Financial Year | Debit ($m) |
|---|---|
| 2020-21 | 50 |
| 2021-22 | 200 |
| 2022-23 | 200 |
| 2023-241 | 200 |
Notes:
1. As of 31 March 2024.
